FX Watch: AUD/USD broke above triangle formation, USD/JPY saw dip-buying

Round-up

Bets for a Federal Reserve (Fed)’s rate cut in September were boosted overnight, as downside surprises in US economic data called for a quicker policy easing to curb weakening economic prospects. US jobless claims last week were a tad weaker than expected, while US services Purchasing Managers' Index (PMI) fell in contraction territory unexpectedly at 48.8 versus market forecast for a 52.5 expansion.

Treasury yields headed lower with more dovish bets in place, while the US dollar was dragged to a near two-week low as calls were raised for the Fed to take more focus on growth conditions ahead.

AUD/USD broke above triangle formation

In a breakthrough for the AUD/USD, US dollar weakness has dragged the AUD/USD to its highest level since This may mark a potential break above a symmetrical triangle formation, as its daily relative strength index (RSI) defended its key mid-line.

Policy divergence between the Reserve Bank of Australia (RBA) and the Fed may be a bullish catalyst for the pair, with broad expectations for the RBA to only cut rates in 2025 given a recent resurgence in pricing pressures, while earlier rate cuts from the Fed have been well-anchored following yesterday’s US data.

Buyers may seem to set their sight on the 0.686 level ahead, while on the downside, the 0.663 level will be on watch as immediate support to hold.

Dip-buying kept USD/JPY supported

On the other hand, dips in the USD/JPY were quickly bought into, with the yen carry trades still pretty much in favour for now despite narrowing US-Japan yield differentials over the past two months. A look at the four-hour chart saw dip-buying in place to defend an upward trendline at the 160.80 level, which may point to the lower trendline support of a near-term rising channel formation.

Staying above the mid-line of the RSI may keep the upward bias intact, with further upside likely to place the 162.50 level on watch, where the upper channel trendline stands. On the downside, we may expect some defending at yesterday’s low at the 160.76 level.